• The Multiple Aspects of EU Exit and the Future of the Union

  • Μαρίκα Φραγκάκη | 28 Feb 18
  • A significant change has taken place in the state of affairs of the EU in the aftermath of the global financial crisis in 2007/2008, which morphed into a debt crisis in the Eurozone in 2009/2010. What was thus far unthinkable, namely the exit of a Member State from the Union, became a possibility. Grexit introduced the notion as a possibility, while Brexit turned it into a reality.

    More specifically, since 2010 and the emergence of the debt crisis, Greece’s exit from the Eurozone has repeatedly been the object of speculation on the part of the European political establishment, even though it is a legal impossibility according to the Treaty of the European Union (TEU). On the other hand, Britain’s exit from the EU, which will take place in two years’ time, has taken the European ruling elites by surprise. It is the first formal exit of a Member State from the Union.

    Rumblings of other exits can also be heard from various quarters and countries, such as the Netherlands (Nexit) and the Czech Republic (Czexit), and the anti-EU Front National party did exceedingly well in France’s April 2017 presidential elections. In the Netherlands, the anti-EU Freedom Party came second in the March 2017 national elections. In Austria, early parliamentary elections were called for 2017 – instead of 2018 – with the aim of checking the rise of the Eurosceptic, far-right Freedom Party.

    Exiting the EU has thus become both an idea gaining ground and a reality soon to be put into effect. This is a turning point in the history of the EU, which rests on the premise of an ‘ever closer Union’.

    The present conjuncture – which may indeed prove to be a ‘critical caesura’ defining future developments in Europe – presents both risks and opportunities. Dealing with the risks and taking advantage of the opportunities will be crucial for the future of the European Union and the role of the left in shaping it. If anything, the experience of the Greek left has taught us that one can never be too prepared for what the powerful and unrelenting ruling elites of the present-day EU will dispense.

    From an ‘ever closer union’ to Brexit

    In the first half of the twentieth century Europe was ravaged by two world wars, embroiling almost all the nation-states of the time. Not surprisingly, at the end of each war, the idea of somehow uniting Europe surfaced both in political discussions and in European consciousness. The idea of a European federal union was first brought up at the 1929 Assembly of the League of Nations.

    Such ideas were mainly concerned with the need to promote economic goals, with a Europe without borders and customs put forward as a means of promoting peace and development. However, although the primary concerns of these discussions were economic, one cannot dismiss the search for a common feeling of togetherness, which needed to be restored. As Louise Weiss, a French Jewish feminist, wrote in her Memoires d’une Europeenne (1969), ‘we were still true Europeans’ in the pre-war years.1

    The spirit of European consciousness is currently embodied in Article 1 of the TEU, which states that ‘This treaty marks a new stage in the process of creating an ever closer union among the peoples of Europe, in which decisions are taken as openly as possible and as closely as possible to the citizen’, while Article 3 states that ‘The Union’s aim is to promote peace, its values and the well-being of its peoples.’ The eventuality of a Member State withdrawing from the Union was never seriously considered, that of excluding a Member State still less so.

    In particular, no provision in the treaties or law of the EU outlined the ability of a state to voluntarily withdraw from the Union. This was changed by the Treaty of Lisbon, which amended the Treaty of the EU, inserting the new Article 50, which states: ‘Any Member State may decide to withdraw from the Union in accordance with its own constitutional requirements.’ Furthermore, Article 50 lays out a procedure for the negotiation of transitional arrangements and envisages an agreement with regard to the future relationship between the EU and the departing Member State, a procedure known as ‘negotiated withdrawal’.2

    While the TEU contemplates the voluntary withdrawal of a Member State, there is no provision for expelling a Member State outright. The closest the Treaty comes to penalising a Member State is in the case of a breach of the EU’s founding values as outlined in Article 2 – i.e., respect for human dignity, freedom, democracy, equality, the rule of law, and respect for human rights. The conditions for identifying such a breach are especially stringent, as laid out in Article 7 of the Treaty.

    In fact, the notion of an EU exit was until recently so unheard of that, on the enactment of Art 50 of TEU, the Legal Counsel of the ECB noted that, ‘… a recently enacted exit clause is prima facie not in harmony with the rationale of the European unification project and is otherwise problematic from a legal perspective; a Member State’s exit from the Economic and Monetary Union, without a parallel withdrawal from the EU, would be legally inconceivable; while perhaps feasible through indirect means, a Member State’s expulsion from the EU or EMU, would be legally next to impossible’.3

    The notion of the irrevocability of the Union was shattered by the British referendum of 23 June 2016, in which 51.9% of the participating UK electorate – or 17,410,740 persons - voted to leave the EU, as opposed to 48.11% - or 16,141,2241 persons – who voted to remain a member. The fact that 72.21% of registered voters and 65.38% of the population of voting age turned out to vote adds to the significance of the referendum’s result.

    Contrary to the prevailing spirit in the Treaties and in the minds of political actors as well as most Europeans until a few years ago, the agreement to be reached with Britain following the ‘Leave’ result is the first of its kind. It is a formal exemption from the goal of an ‘ever closer union’ and a political statement of great importance for the future of the EU. The solidity of the Union has been challenged, as political, economic, and social pressure is mounting throughout its Member States, hitting different countries with varying intensity.

    The Brexit vote, with its undertones ranging from nostalgia for the British Empire to the rejection of an institution that seems irrelevant to ordinary people’s lives, has opened a Pandora’s box. Europhobic sentiments have been reinforced, and Euroscepticism, already on the rise, is expanding. In the left as well, the idea of leaving the Union – Lexit – has its supporters. This is a position that tends to underestimate the leverage that can be applied on the European institutions from within, while overestimating the possibilities for action outside it.

    Speculating on Grexit

    Although the expulsion of a Member State from the EU is not provided for in the Treaties, there has been speculation on the possibility of Greece being ‘kicked out’ of the Eurozone by its partners and creditors ever since the beginning of the Eurozone crisis. This speculation has indeed deepened the crisis both in Greece and in the Eurozone, as it has given rise to a great financial markets and reduced demand and investment in the economy.

    It is worth noting that Grexit was never employed by the Greek side as a threat to destabilise the Eurozone. This is quite remarkable as there was ground for using such a threat in combination with the demand for debt relief in the wake of Greece’s debt crisis in 2009/2010. The fact that it was not deployed is indicative of the close links between the Greek and the European political establishments, since such a demand would benefit Greece at the expense of private investors, mostly large European banks.

    The opportunity for this demand was lost by 2012 and with Draghi’s statement that the ECB would do ‘whatever it takes’ to preserve the stability of the European financial system. Draghi’s dictum was in fact a precursor of the quantitative easing programme of the ECB, which has flushed the European financial system with liquidity since the beginning of 2015.

    While the threat of Grexit was never used by the Greek side, it was explicitly employed by the country’s creditors, that is, its Eurozone partners under the leadership of Germany. This threat underpinned the propaganda enthusiastically spread by much of the popular press in Germany and in other countries, blaming the Greeks at large for the ills of their economy. Thus what is presumed to be a ‘community of solidarity’ according to the founding principles of the EU turned into a ‘community of fate’, the members of which are bound together by shared risks.4

    More specifically, Greece’s Eurozone partners provided financial assistance conditional on harsh austerity, deregulation, and privatisation measures, thus exacerbating rather than resolving the situation. While Greece depends on such assistance in order not to go bankrupt, its creditors keep providing it in order to avoid the risk of a default by a Eurozone Member State, which would present a challenge to the irrevocability of the euro.

    The crisis in Greece led to the rise of the left, culminating in Syriza’s victory in the January 2015 national elections and the formation of a coalition government with the small centre-right party ANEL (Independent Greeks).

    The Syriza-led government was politically trapped from the start, as it had to negotiate the closure of the 2012 programme by the end of February 2015. At the same time, the public coffers and the economy were in bad shape. Syriza’s efforts to negotiate a pact with Greece’s creditors that would be mutually beneficial were in vain. Its Eurozone partners brandished naked political power, aided by the ECB’s asphyxiation of the economy. During this process the threat of Grexit was famously made by the German Finance Minister, Wolfgang Schäuble.5

    At that point, Syriza took the historic decision to sign a new agreement with the country’s creditors, also conditional on the measures associated with the previous two bailout agreements, and to call for new elections in September 2015. The party suffered a split, as many leading members formed a new party on a platform of default and exit from the euro. The outcome of the September 2015 elections gave Syriza a clear victory, and it again formed a coalition government with ANEL. The party formed by those who had left Syriza did not pass the 3% threshold to enter parliament. Does the decision made by the Syriza leadership appear justified? What has it since achieved in government that can be characterised as left-wing policy?

    Syriza has never accepted ownership of the bailout programme, which is a major source of irritation for the creditors. The political significance of this position is that Syriza has pursued a number of objectives over and above the programme. These include the following:

    • Revealing and dealing with the intricate web of relations between the political system, the media, and the banks. This triangle of relations underlies the clientelist state characterised by tax evasion and corruption. Syriza’s policy has been (a) to force these interrelations into the open, through public hearings; (b) to oblige TV station owners to obtain an operating license; such licenses, which should have been issued more than twenty years ago (!), had been conveniently overlooked by all previous governments; (c) to pass a law obliging the banks to publish their expenditures on advertising and the loans granted to media owners;
    • Abolishing the majoritarian electoral rule and replacing it with proportional representation, a long-standing demand of Greece’s left;
    • Dealing with the humanitarian crisis, which has reached unprecedented proportions for a European country in peacetime;
    • Officially recognising the right of the LGBT community to establish marital relationships on the basis of a civil union agreement;
    • Stabilising the country’s banking system, which has suffered a significant flight of deposits and a great increase in non-performing loans since 2012;
    • Dealing with the refugee crisis, which has assumed gigantic proportions. In 2015, 856,723 arrivals were registered, in comparison to 43,500 in 2014. This influx of people tested the limits of the state apparatus and of public finances. Greek society however managed to cope with it and extend a helping hand to the migrants and refugees literally being washed onto the shores of many Greek islands in the Aegean Sea.
    • Furthermore, while implementing the fiscal consolidation terms of the Agreement, Syriza is putting its own mark on the policy mix adopted.
      For example, the emphasis has shifted from cutting public spending to raising taxes, from indirect taxation, which is regressive, to direct taxation, from horizontal tax increases to increases that weigh more heavily on the wealthier segments of society.
    • At the same time, a roadmap for the restructuring of the public debt has been agreed on. Although this is a work in progress, it provides a policy handle in the ongoing discussions on debt relief.6
    • On the European front, Syriza has taken the lead in forming an alliance with the other Southern European countries. The First Mediterranean EU Countries Summit took place in Athens in September 2016. The Athens Declaration contains a common position on Brexit, on the refugee crisis, on youth unemployment, on growth and investment, on security, and on relations with the Mediterranean and African countries.

    Overall, Syriza is persevering in a very unequal political battle. The Greek economy needs to be shored up and Greek society given back its sense of dignity. There are positive signs, as growth is picking up and unemployment is being reduced. It is a slow but steady process which offers hope for a better future.

    On the other hand, Grexit is never very far from the mind of the German elites. For example, Christian Lindner, chair of the Free Democratic Party, insists that debt forgiveness to Greece be tied to Greece’s exit from the Eurozone, while remaining in the EU. In his opinion, ‘Greece gets a debt cut, the money is gone, but for that Greece has to leave the euro zone, get a new currency of its own which it can devalue and increase its competitiveness in tourism’.7

    Assertions of this kind are not only nonsensical in terms of economics, since they ignore the internal devaluation that has already taken place, but also dangerous in terms of politics. In particular, the fact that such speculation has a boomerang effect, striking back at its propagators, does not seem to have reached home. Indeed the handling of the Greek crisis by the European and Greek ruling elites has undermined popular trust in the ability of the EU institutions to handle a crisis in an equitable and efficient way. Nevertheless, the ruling elites remain confident in their own capacity to deal with the problems at hand.

    Implications for the future of the EU

    Do these two cases of EU exit, actual and speculative, constitute critical junctures in the evolution of the EU? What kind of disintegrative forces do they unleash? In order to gain some insights, we shall compare Brexit and Grexit – the modalities involved and the issues raised.

    The UK submitted a notification of intention to withdraw from the EU and EURATOM on 29 March 2017, marking the opening of negotiations under Art. 50 TEU. A space of two years is then allowed, during which the Union negotiates and concludes an agreement with the UK, setting forth the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union. The final UK-EU agreement will be concluded by the European Council acting by a qualified majority. It must also have the consent of the European Parliament and, under certain circumstances, be ratified by the national parliaments of the 27 Member States. This is the case where the UK-EU agreement cuts across policy areas within the preserve of Member States. The talks expire on 29 March 2019. At midnight of that day, the UK will cease to be a member of the EU.

    The areas to be negotiated concern (a) citizens’ rights; (b) financial settlement; (c) jurisdiction and legal status; (d) trade; (e) security; (f) Ireland and Northern Ireland; and (g) other areas of cooperation. Sequencing is a further issue. At the insistence of the EU, the areas of citizens’ rights and the financial settlement have been prioritised. The EU’s guiding principle is that ‘nothing is agreed until everything is agreed’.8

    More than a year after the referendum and five months into the negotiations, very little has been agreed. Furthermore, the two sides seem to be talking past each other, while acrimony is building up especially over the so-called ‘divorce bill’, which is estimated on the basis of different principles by each side resulting in different figures, varying from zero to €100 billion! Such a profound disagreement is fuelling uncertainty, even mistrust, between the two sides. For example, following the third round of exit talks, the EU’s chief negotiator, Michel Barnier, accused the British side of being ‘nostalgic and unrealistic’ while his British counterpart , David Davis, called for the EU to be ‘flexible and imaginative’.9

    The issues raised by the negotiated withdrawal of the UK are numerous and complex. On the domestic front, the result of the British referendum was followed by a government crisis and the emergence of a more anti-EU conservative administration. However, in the snap elections of June 2017, the Labour Party increased its vote share considerably, while the far-right UKIP failed to enter parliament. These developments point to a politically fluid situation, although the economy will come under increased pressure due to the uncertainty created by Brexit, adding to the general upheaval.

    On the European level, the withdrawal of the UK will disrupt the Union’s internal equilibrium, as the share of non-Eurozone countries in EU GDP will drop from 30% to 15%, strengthening the political and economic supremacy of Germany. The Eurozone Member States of Southern Europe will also be affected, as they come under intensified scrutiny by the financial markets. In addition, right-wing populist insurgents will be inspired by Brexit to try to shape political debate.

    Overall, Brexit opens the way to a long process of negotiation, the outcome of which is at best uncertain and at worst damaging, especially for Britain, as it will need to disentangle itself from forty years of economic and regulatory integration with the EU.

    What appears to be complex and uncertain in the case of Brexit would in all probability be simply chaotic in the case of Grexit. Assuming a euro-exit were legally possible under the EU treaties, the issues raised are many and especially intricate. Capital Economics, a London based think-tank, which in 2012 won the Wolfson Prize for the best proposal to ‘safely dismantle the Eurozone’, concluded that a country contemplating leaving the euro would have to keep its plans secret until the last minute, introduce capital controls, start printing a new currency only after formal exit, seek a large depreciation, default on its debts, recapitalise bust banks, and seek close co-operation with remaining Eurozone members.

    This is a long list of requirements, which suggests that introducing a new currency is complex when it is done in a planned way. If it is done suddenly and under duress, it is a hugely disruptive process with many unintended consequences that cannot all be anticipated both on the domestic and on the European level.

    If Brexit is then a long and complex process, while Grexit is an intricate if not chaotic one, what are the implications for the future of the EU?

    The disintegration process set in motion by both exits is indeterminate, in the sense that they unleash forces and dynamics which might significantly transform the EU institutional equilibrium whilst simultaneously being constrained and shaped by it.10 The multiplicity of crises facing the EU at present - not least of which is the refugee crisis - is a further complicating factor.

    Disintegration is not integration in reverse. A disintegration theory is needed; one that will help analyse the motivations of different actors and model their interaction in order to project how this process will unfold beyond the near future. As the search for answers is intensified, so is the debate around theoretical constructs.

    The EU is at a crossroads. It is a composite polity having certain state characteristics, while characterised by a variety of asymmetries. During the crisis the Community method, emphasising the role of the supranational bodies in the decision-making processes, gave way to increased intergovernmentalism. Furthermore, a decision-making hierarchy composed of France and Germany emerged, followed later by growing German unilateral leadership. The bitter taste of a ‘democracy without choices’ which has spread across the EU does not augur well for the future of the Union.

    In characteristic fashion, the President of the European Commission, Jean-Claude Juncker, is quite confident that ‘Europe has always been at a crossroads and has always adapted and evolved’.11 Thus the Commission produced a White Paper on the Future of Europe detailing five scenarios: (1) carrying on; (2) nothing but the single market; (3) doing more; (4) doing less more efficiently; (5) doing much more together.

    Typically, the scenarios put forward by the European Commission overlook the inherent contradictions and tensions in European societies and economies. Examples of such tensions are: the working conditions in a post- crisis environment of heightened insecurity and increased deregulation; the role of finance in post-crisis conditions; increasing poverty and inequality; lack of opportunities for a fulfilling life; the growth of a ‘subaltern’ class across the EU; the marginalisation of new immigrants and the growth of racism; and the growing appeal of ultra-right political forces, which was already evident in the 2014 European election results. Overcoming such tensions is going to be decisive for the future of the EU.

    Possible scenarios for the future of the EU have further been put forward by the Congressional Research Service of the US Congress – namely (1) muddling through; (2) establishing multiple speeds; (3) looser, more intergovernmental configuration, and (4) more integrated configuration.12 These bear a striking resemblance to the reflections of the Commission. In both cases what is basically advocated is a rearrangement of the existing state of affairs rather than a caesura.

    It may well be argued that the existing political establishment is not capable of bringing about the type of change needed for the Union to embark on a new course, a course of economic transformation, solidarity, and democracy. It is against this background that the left is called upon to make its contribution to the future of Europe.

    The role of the left

    Both Brexit as a reality and Grexit as a possibility constitute turning points in the history of the EU. Membership in the Union is rejected in the first case and exclusion is used as a threat in the second. Business as usual is no longer possible. A new era has begun.

    Since the inception of the EU in its various forms, the left has argued against the EU’s three main deficits, that is, its democratic, social, and ecological deficits, which cannot be overcome without peace and solidarity as the overarching principles. At each juncture in the history of the Union, not a peace project in itself, the left has tried to intervene, making proposals for an alternative way of functioning for the European institutions in order to better serve the public interest. As the power of finance increased, the left fought against its antinomies and the neoliberal policies that went with it.

    The crisis has acted as a catalyst in terms of political developments. Although many on the left could see it coming, the left as a whole was slow in responding in terms of organising its forces and effectively intervening in the political process. The left’s structural weaknesses and its lack of political mediation limited its role as a political actor.

    The rise of Syriza in Greece was an exception aided by the depth of the crisis, the evidently failed policies of the Troika and of the established political parties, and the coming together of various factions within the Greek left. The European left rallied around Syriza, providing valuable support. However, when Syriza was elected to government and after a six- month long period of negotiations, as a result of which Syriza agreed to many of the demands of the country’s creditors, choosing not to let Greece go bankrupt, the left both in Greece and in the EU was divided. Should the Syriza government have taken Greece out of the euro and thereby default on its obligations?

    The mandate of the January 2015 elections was not for default, while Syriza asked for a new mandate from the Greek electorate in the September 2015 elections, which it was given. The hypothetical question however remains. Only history will show whether the route followed by Syriza was the right one.

    Lexit – a left political proposal for exit from the EU – came up in the 2016 British referendum. The argument of Lexiters is that the current treaties and structures of the EU need to be dismantled and replaced by others within the framework of a new union, on the basis of a radical reconsideration of the foundations of the current EU and the practices that structure it. This is a laudable ambition and political objective. However the roadmap leading to the desired goal is not there. In view of the internal weaknesses of the left and its lack of political mediation in the decision-making processes, it is hard to see how these goals can be achieved. Nor does the historical experience of the twentieth century provide many useful lessons.

    Overall, the left finds itself in a difficult position. Never in the post-war period has there been such a crying need for it to play a role. However, its internal divisions limit its impact on developments. This state of limbo must be overcome for the left to be able to put forward and work towards a ‘critical scenario’ that will put an end to the crisis in favour of society at large. In this respect, the Syriza experience is of value.


    Notes

    1. Quoted by Wim de Wagt, ‘When we were true Europeans’, Social Europe, 11 October 2016.
    2. See http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:C:2016:202:FULL&from=EN.
    3. Phoebus Athanassiou, ‘Withdrawal and Expulsion from the EU and EMU – Some reflections’, Legal Working Papers, No. 10, ECB, December 2009.
    4. Benjamin Leruth and Christopher Lord, ‘Differentiated integration in the European Union: a concept, a process, a system or a theory?’, Journal of European Public Policy, 22,6 (2015), 754–763.
    5. Schauble’s push for Grexit puts Merkel on defensive, Der Spiegel, 17 July 2015.
    6. Eurogroup Statements on Greece on 25 May 2016 and on 15 June 2017.
    7. Rainer Buergin and Matthew Miller, ‘Merkel’s would-be ally says no to pots of money for Macron’, Bloomberg.com, 1 September 2017.
    8. European Council, Special meeting of the EC (Art. 50), 29 April 2017.
    9. Jennifer Rankin and Lisa O’Carroll, ‘UK’s approach to Brexit is “nostalgic and unrealistic”’, The Guardian, 31 August 2017.
    10. Ben Rosamond, ‘Brexit and the Problem of European Disintegration’, Journal of Contemporary European Research, 12,4 (2016), http://jcer.net/index.php/jcer/article/view/807.
    11. European Commission, ‘White Paper on the Future of Europe, Reflections and scenarios for the EU27 by 2025’, COM(2017)2025 of 1 March 2017.
    12. Kristin Archick, ‘The European Union: Current challenges and future prospects’, CRS Report, Washington, Congressional Research Service, 27 February 2017.